The darker side of the rise in U.S. productivity

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Emma Trochez trims a U.S. flag at the apparel manufacturing division of Goodwill Industries of South Florida in Miami earlier this year. Economists debate whether increased productivity is mainly due to advancements in technology or just workers putting in more hours.

Aug. 28, 2003 -- — For several years now, economists from Alan Greenspan on down have been praising the tech-driven improvement in the productivity of the U.S. work force. The theory is that, as computers allow us all to produce more with less work, our incomes will continue to grow and our standard of living will rise. But there’s a darker side to productivity that some economists are now beginning to look at more closely. Simply put: Are we all really working smarter? Or just a lot harder?

Unfortunately, the answer can’t be found in the blizzard of economic data churned out by the government every month — for the simple reason that the formulas used to measure productivity don’t care whether you’re working harder or smarter.

But some economists are beginning to acknowledge that as cellular phones, home computers, and fax machines lengthen the tether to our jobs, a big chunk of those rosy productivity gains are really coming from a fundamental shift in the workplace that is leaving us all toiling longer and harder.

"I believe that is a permanent and unreported, unrecognized outgrowth of this expansion of information technology," said David Jones, a longtime Wall Street economist and now a private consultant. "Everybody works harder in their own ways. But some of that is misread as higher productivity."

Officially, productivity is measured by adding up all the goods and services a country produces and comparing that with all the resources — including capital, equipment and labor — that went into producing them. In the U.S., the biggest chunk of those resources is labor, which represents about two-thirds of the cost of what we produce. Labor productivity is measured by adding up all the goods and services we produce and then divided by the number of hours it took all of us to produce them.

That formula works best with workers who are paid by the hour. But according to the Bureau of Labor Statistics, so-called "hourly workers" make up less than 30 percent of the work force. So if, instead of making widgets you’re, say, a fulltime sales manager for carpet store or running your own catering business, you’re probably not getting paid by the hour. And no one is keeping track of how many hours you work.

Fear factor
The move to squeeze more work from fewer people is not just coming from tyrannical bosses. With the U.S. economy in the midst of a "jobless recovery," labor experts say part of the increase in labor productivity can be attributed to worried workers picking up the slack of laid-off co-workers. They’re also keeping their noses closer to the grindstone to avoid being the next one issued a pink slip. Call it the "fear factor."

"They’re working harder because they’re are fewer people around them than there used to be, and they know there are more people on the job market," said John Challenger, CEO of the Chicago-based job placement firm Challenger, Gray & Christmas. "So they’re holding on to their jobs for dear life, to a degree. They’re protecting against the risk of losing their jobs and becoming one of the statistics of the more than 2 million people who have been out of work for 27 weeks or longer."

What has many economists and labor experts stumped is why productivity has continued to rise — even as the economy has slumped.

"Usually in a recession productivity goes down," said Challenger. "That’s what’s so remarkable about what’s happening this time. That’s why the economists are surprised: Productivity usually goes up in good times and comes down in bad times."

Competing harder
The recent surge in U.S. labor productivity is also a major reversal from the 1970s — when gains in U.S. productivity stalled. At the time, a lot of hand-wringing economists proclaimed that the U.S. work force was falling behind harder-working Asian countries — and that the U.S. standard of living was at risk. So, after two decades of massive effort and investment aimed at reversing that slump, isn’t it a good thing that all this hard work is paying off?

For those still employed, it is. But it turns out that working harder may be costing the person next to you his or her job. If demand for your company’s widgets doesn’t grow as fast as your company’s productivity, it won’t be able to employ as many people, according to Phil Romero, Dean of the Lundquist College of Business at the University of Oregon.

"Numerically, if demand is growing at 2 to 3 percent but productivity is growing 4 to 5 percent a year, that means you need 2 to 3 percent fewer workers than you needed before," he said. "That’s exactly the situation we’re in now."

And if those productivity gains continue to outrun the growth in new demand for products and services those lost jobs won’t come back — no matter how fast the economy recovers and expands.

"Rising productivity growth has been a factor in retarding job growth," J. Alfred Broaddus, Jr., President of the Federal Reserve Bank of Richmond, told CNBC last week. "This is really, I think, the key factor here that makes this particular recovery different from the others and it produces some problems."

The "working smarter" side of productivity also means constantly building new skills — retraining yourself to keep up with changes in your job or finding a new one if your old job goes away forever. But in the rush to train workers for a specific job, one that almost certainly won’t last an entire career, educators have become too short-sighted, according to Romero.

"Over the last 20 years, roughly, a large slice of American higher education has become increasingly vocational — and my school would be among them," said Romero. "That’s another way of saying the time horizon of that education has shrunk. It may prepare you very well for your first job. But it doesn’t prepare you very well for your fifth."